Is China Ready to Buy Gold at Last?
(Do the math on this one!)
Silver Stock Report
by Jason Hommel, November 19, 2008
It's funny because it's like they don't know basic math.
China wants 4000 tonnes of gold, to help "diversify" their $1.9 trillion in U.S. bonds. It's quite a joke. Please bear with me as I explain.
A tonne of gold is 32,151 ounces. Please search "troy ounces per tonne" at google to confirm, because this one bit of information, and a simple calculator, can help you unlock and decipher the meaning of what you read in the news regarding the gold market, as gold at the national level is usually always quoted in terms of tonnes.
The total ounces China is seeking, is thus: 4000 tonnes x 32,151 ounces/tonne = 128,604,000, or 128.6 million ounces.
That's an interesting number because it is about half of the U.S. official gold reserves of 261 million ounces.
It's also an interesting number because the total annual gold market consumption is said to be about 4000 tonnes, while annual mine production is only about 2500 tonnes.
But let's now multiply by the current gold price, to see how much of China's reserves could be diversified if they obtained that, without disturbing the price.
At $736/oz., times 128.6 million ounces = $94649.6 million, or $94.6 billion.
That's funny, because $94.6 billion is not very much of $1.9 trillion, which is $1900 billion.
What's the percentage? Simple: $94.6 / $1900 x 100 = 5%.
See, if China diversified 5% of their reserves, they would dominate the world gold market, buying an equal amount bought by the rest of the world in a year, and that could crash the dollar by 50%, while gold prices could double!
And actually, such a diversification of $94 billion would be no diversification at all, since China has added $600 billion to their dollar holdings within the last 6-7 months, up from $1.3 trillion.
To truly diversify, they would need to sell more dollars than they are accumulating, so they really need to buy about $600 billion worth of gold, or more, in a year.
How much would a true diversification be at current prices? $600 billion / $94 billion = 6.38 times as much gold as the world buys in a year.
Please think on that, and buy silver, instead. Because as we have seen, as gold moves, silver moves higher faster, and runs out sooner, because it is more scarce.
Here is a quote that has been posted for over a year at my main page at silverstockreport.com:
"Even though the U.S. dollar is no longer backed by gold, any holder of dollars could wise up at any time and start buying silver or gold. China, for example, could spend their $1.3 (now $1.9) trillion U.S. dollars in bonds and buy gold anywhere in the world, such as Switzerland, Dubai, Tokyo. China could even send agents to buy gold at any of the 4,000 or more coin shops in the U.S. The dollar could drop 50% or more overnight, and there's not a single thing the U.S. government, you or I could do about it."
Please note the following news items:
China Should Buy Gold for Reserves, Association Says (Update2)
China PBOC Mulls Raising Gold Reserve By 4,000 Tons - Report
"China's central bank is considering raising its gold reserve by 4,000 metric tons from 600 tons to diversify risks brought by the country's huge foreign exchange reserves, the Guangzhou Daily reported"
Two other quick news items:
Saudi Arabia buys $3.5bn of gold in two weeks
Finally, a news item regarding China's silver.
Silver hit by rising cost of production
Finally, it is keenly important to put the relation of gold and silver in perspective.
The world's consumption of gold, 4000 tonnes is $94 billion.
The world annual investor demand for silver is about 100 million ounces, or $1 billion.
Do you see why silver is the far superior investment to gold? Silver will move higher much more easily, and you will make far more money in silver.
The bulk and weight of silver now, are the reasons why some avoid it, and are the exact reasons why it will perform better than gold. Fewer people take the "pain" to own it, thus, it is the more contrary investment, and will perform better.
Reminder: 10,000 ounces of silver are available at auction this Wednesday night, at http://www.seekbullion.com/
Oh yes. My mom also told me this week that she usually gets about $1 more per ounce at ebay than at seekbullion.com. But that does not necessarily mean that seekbullion.com is cheaper, because it's not a perfectly fair comparison, since her auctions at seekbullion.com are usually over 100 oz., while at ebay, they are usually less.
This same principle, China reporters seem to fail to understand.
When China moves, they will get less gold for the money, because when they
move in size, they will move the market. Communists really don't
understand free market principles, as a matter of general principle.
But then again, neither do 99.9% of Americans, who prefer paper money,
instead of real silver, and gold.